Humana, UnitedHealth May Face 3.55% Advantage Rate Cuts

Feb. 22 (Bloomberg) -- Health insurers participating in the
Medicare Advantage program for elderly Americans, including
Humana Inc. and UnitedHealth Group Inc., face a base payment cut
of about 3.55 percent next year, the U.S. government said.

The payment reductions proposed yesterday are subject to
negotiations with the industry and aren’t expected to become
final until April 7. Insurers have predicted total cuts to the
program, including additional adjustments, will be as much as 7
percent. A lobbying campaign to minimize the cuts had begun
already, including a Feb. 14 letter to the administration from
40 senators urging the government to freeze Advantage rates.

“The final cut may be bigger, as the proposed rate doesn’t
take into account adjustments required by the Affordable Care
Act,” Michael Manns, a Bloomberg Industries analyst, said in a
telephone interview.

About 15.9 million people, or about 30 percent of Medicare
beneficiaries, are enrolled in Advantage plans this year,
according to February data from the government. Next year may
mark a turning point: Medicare’s actuaries estimate that
enrollment will decline for the first time since 2004 because
payment cuts will cause plans to drop out or reduce benefits.

“Practical and predictable MA payment rates are essential
to ensure the continued access to this successful program,”
Matt Stearns, a spokesman for Minnetonka, Minnesota-based
UnitedHealth, said in an e-mail after the announcement. Stearns
declined to comment on what the company expects as a final rate.
UnitedHealth is the largest U.S. health insurer.

Advantage Expenses

Consumers who choose Advantage plans are opting for managed
care with benefits including lower out-of-pocket costs over the
traditional government-run Medicare program for the elderly and
disabled. Government payments have been under pressure since
2010, when the U.S. health expansion was financed in part by
reducing spending on Advantage plans by an estimated $206
billion over a decade. At the time, U.S. spending for Advantage
beneficiaries was estimated to be as much as 13 percent higher
than for people enrolled in traditional Medicare, leading to
criticism that the Advantage plans were overpaid.

Even after the cuts, the Medicare Payment Advisory
Commission, which studies the program for Congress and
recommends cost savings, estimates that Advantage plans were
paid about 4 percent more in 2013, per beneficiary, than the
cost of the traditional program.

Rate Reversal

Last year, the administration raised 2014 base payments for
Advantage insurers by 3.3 percent, after initially proposing a
2.2 percent reduction. Still, insurers say that other government
decisions -- including a new tax on the industry under the
Patient Protection and Affordable Care Act known as Obamacare
and budget sequestration ordered by Congress -- reduced their
Advantage payments about 6.7 percent in total this year.

“We believe that plans will continue their strong
participation in the Medicare Advantage program in 2015 and
beneficiaries will continue to have a wide array of high-quality, high-value, low-cost options available to them while at
the same time we are making certain that plans are providing
value to Medicare and taxpayers,” Jonathan Blum, principal
deputy administrator of the Centers for Medicare and Medicaid
Services, said in a statement.

Before yesterday’s announcement, insurers said their total
payment reduction for 2015 may be as much as 7 percent. Their
lobbying campaign has included posters plastered around
Washington that picture an elderly man with a pair of
binoculars, with the warning “Seniors Are Watching.”

Lawmakers’ Letter

The 40 U.S. senators who wrote to Medicare administrator
Marilyn Tavenner asking for payments to be frozen were led by
New York’s Charles Schumer, a Democrat, and Idaho’s Michael
Crapo, a Republican.

“Millions of American seniors chose Medicare Advantage
because the program lives up to its name by delivering clear
advantages,” U.S. Senator John Barrasso, a Wyoming Republican,
said in a statement after the announcement. “Instead of
listening to seniors and investing in a program that works well,
the Obama administration is doing everything possible to make
sure it fails. Gutting the Medicare Advantage program will
ensure that even more Americans can’t keep the health care they
like.”

While Medicare actuaries estimate enrollment in Advantage
plans will dip next year, the Congressional Budget Office
predicted that participation may rise as much as 50 percent in
the next decade to 21 million by fiscal 2023.